Jeeves & the Estate Home: So What Exactly is an Estate Plan Anyway?

While out driving yesterday, I passed a sign put up by a builder seeking to sell “Estate Homes.”  Despite the fact that I deal with “Estate” matters every day, the builder has succeeded in conjuring up the image they wanted me to see by using the term “Estate”:

White pillar columns in the front of the home, family initials on a gated entrance, German Sheppard guard dogs guarding the perimeter and possibly a butler named Jeeves to greet me at the entrance.

For the most part, I stopped calling myself an Estate Planning Attorney unless I’m speaking with someone who is also an attorney or financial professional.  As someone who deals with the topic every day, I have to remind myself that not everybody realizes what Estate Planning entails.  Moreover, very few people know what it means to have an Estate.   Yet others are under the belief that estate planning is for those who have amassed or exceeded a certain level of wealth.

Follow this mental exercise with me: think of everything that you own or everything that you would leave behind when you are no longer on this Earth.  This can include real estate, investments, business interests, life insurance death benefits, retirement accounts, pensions, jewelry, German Sheppard guard dogs etc. While living, these items are your assets.  When you pass away and they go to someone else, these assets are collectively referred to as your Estate.

An Estate Plan is the planning that you do prior to death or disability which allows you to control your property while living, and to give what you have to whom you want to give.  You can specify when you want it to be received and in which the manner it will be received.  When done properly, it’s also an opportunity to save significantly on estate taxes, provide asset protection, plan for disabilities, as well as to serve other goals.

So who needs an Estate Plan?  Is it someone past a certain level of wealth?  No.   While the amount of wealth will have a bearing on the nature of the plan selected & the strategies used, it is not the sole determining factor of who needs an estate plan.  A person needs an estate plan when they want control who receives their property, when it is received and in the manner in which it is received.  That person can be the person buying the “Estate” home or Jeeves, the gentlemen who greets you at the door.

Protecting Your Clients From Sales & Use Tax Liability


Whether our clients are purchasing an existing business under a newly formed entity (corporation, LLC or other) or are purchasing the ownership interests (Stock or Membership units) of an existing company, both parties to a contract are typically eager to Close the transaction on the anticipated settlement date after all remaining contract contingencies have been satisfied. Among the myriad of liabilities from which we need to protect our Buyer-client is that of back owed Sales & Use taxes.

How can we protect our Buyer-client from liabilities arising out of the Seller’s failure to pay sufficient sales & use taxes? 

The answer is by filing a timely Bulk Sales notification with the State of New Jersey Division of Taxation. Per the New Jersey Bulk Sales Act, the Division of Taxation requires that when a business is being sold or dissolved, the Bulk Sales Section must be notified and given the opportunity to determine whether any taxes are due and owing to the State. Recently, the State of New Jersey has made clear that they intend the statute to apply not only to transfers of business assets, but also to the sale of real estate if the real estate is the principal asset of the seller or if the primary purpose of the real estate is to support a business. The statute also applies to any transfer, regardless of the consideration or dollar amount. This means that even if the transfer is for no consideration, the Buyer and Seller must comply with the State mandated bulk sale notification procedures.

What are the steps for gaining protection? 

To protect the Buyer from unknowingly assuming the Seller’s tax liability, adhering to the following Bulk Sale Transfer Notice Requirements is imperative prior to, on the day of, and after Closing:

1. The Seller, with the assistance of the Seller’s accountant, must prepare and deliver to the Buyer the Asset Transfer Tax Declaration, which will assist the State in determining the estimated tax on the gain from the transfer of assets.
2. The Buyer, with the assistance of the Buyer’s attorney, must prepare a Notification of Sale, Transfer or Assignment in Bulk, which, along with a copy of the fully executed Contract, will be forwarded to the Division of Taxation at least ten (10) days prior to Closing.
3. Within ten (10) days following receipt of the documents, the Division of Taxation will notify the Buyer’s attorney of any possible claim for state taxes and specify the amount to be held from the Seller’s proceeds and escrowed by the Buyer’s attorney on the day of Closing. This amount may include any underpayments to the State, unfiled returns and any fixed or pending audit assessments. In the event no taxes are owed to the State, the Division of Taxation will issue a Letter of Clearance.
4. After Closing, any amounts owed to the State will be paid out of the escrow account. Once all state taxes have been paid, the Division of Taxation will authorize the release of the remaining funds in escrow to the Seller by issuing a Letter of Clearance.

What are the ramifications of not complying with the Notice requirement? 

The statute containing these requirements, N.J.S.A. 54:32B-22(c), provides that if the State is not notified of the transfer, in addition to being subject to the liabilities and remedies imposed under the provisions of the uniform commercial code, Title 12A of the Revised Statutes of New Jersey, the Buyer “shall be PERSONALLY liable for the payment to the State of any such taxes theretofore or thereafter determined to be due to the State from the seller, transferor or assignor, and such liability may be assessed and enforced in the same manner as the liability for tax under this act.” Conclusion Prior to accepting the transfer of any business assets or real estate, the Buyer and Seller should confirm with their respective attorneys that all the above requirements are applicable and satisfied, so that no unexpected liabilities result from the transfer.

(Note that New York & Pennsylvania, states in which we maintain active practices, have similar means of protections, but are procedurally different.)

Estate Tax reform coming soon… or is it?

What can accountants and financial advisors tell their clients to expect from Congress with respect to Estate Tax reform? According to a recent article in Trusts & Estates magazine (available at, the answer may surprise you. Here are some of the highlights:

There is an increasing possibility that Congress just may do nothing and send us back to the 2001 scenario. Advisors should consider taking immediate action to plan properly for that, and other possible scenarios. Indeed, we have to advise them in 2009 to take into account any number of possible scenarios.

“Everyone” predicted that by 2009 we’d have seen an amendment to the estate tax law. So far, “everyone” was wrong (although, admittedly, there are still almost 2 months left.)

Here’s the current law:

In 2009, we have. . .
$3.5 million generation skipping transfer (GST) tax exemption
$3.5 million exclusion from estate tax
$1 million exclusion from gift tax
45 percent top marginal rate
No state death tax credit

In 2010, there’s supposed to be . . .
No GST tax
No estate tax
$1 million exclusion from gift tax

And in 2011, we’re slated to get . . .
$1 million GST exemption
$1 million exclusion from estate tax
$1 million exclusion from gift tax
55 percent top marginal rate
State death tax credit reappears

Bear in mind that this does NOT address the state’s ‘take’ on estate taxes (i.e. New Jersey’s estate tax exemption is STILL at the pre-EGTRRA level of $675,000.00)

What will happen? Here are some possibilities:

· Congress will do nothing.

· Congress will enact a one-year extension of the 2009 law through 2010 only.

· Congress will enact a one-year extension of the 2009 law and make significant estate tax law changes in 2010 to extend permanently, or make significant estate tax law changes in 2009 to extend permanently, including:

-making the 2009 law permanent;

-reducing or increasing the various exclusions;

-unifying the gift and estate exclusions;

-reinstating the state death tax credit.

Planning in such an unpredictable climate requires the implementation of flexibility in estate plans, the use ofcreativity in maximizing exemptions & deductions, all whilekeeping an eye on Congress for any last minute reform.

What do you need to address for your family?

Your goal may be making sure your children & spouse are financially secure and to protect your assets from those who may ‘attack’ them. Perhaps you want to ensure your property and business is secure in the event of the following: death, divorce, a partner developing a debilitating disability and/or creditor’s attacks. Or it may be as simple as naming a guardian for your minor children. Most probably, your goals and needs are a combination of the above, plus other circumstances unique to you.

There’s no such thing as a ‘one-size-fits-all’ estate plan or a ‘cookie-cutter’ simple will. Different goals and unique circumstances requirepersonal attention and customized plans. Here are examples of client estate planning needs we’ve addressed in the recent past:

• An IT Professional and his business partner needed a comprehensive Buy-Sell agreement which ensured that in the event of either of their untimely deaths, the business can continue to run, but the deceased partner’s family would be paid a fair market value for his share of the business. As you can see both the family and the business needs are addressed.

• A married couple with substantial real estate investmentswanted to ensure that their personal home and assets wouldn’t be lost to a tenant, a lender or other litigant who sues them as a result of liabilities arising from their investments. We were able to implement an Asset Protection Plan which shields their family assets from liabilities than can arise from their investments. Most importantly, they also named a Guardian for their minor children in the event neither of them is around.

• One of our clients is a Physician who is married. Her husband is anon citizen. Her concern was saving money in Estate Taxes and what would occur if she died and her husband survived her, still not an American citizen. We implemented a plan, consisting of Wills and Trusts for each, that will save hundreds of thousands of dollars. Also addressed was the potential negative tax impact facing her husband upon her death as a result of his Resident Alien status. They also chose to create a Pet Trust for their dog.

Your customized plan should address your individual goals and needs. We can work together to put into effect a plan for your asset and income protection that will allow you to keep intact the Estate that you have spent a lifetime creating.

Estate Planning for Non-Citizen Spouses

When one or both spouses in a married couple living in the United States are not citizens of the United States, special planning may be required to avoid hefty tax consequences for transfers during lifetime or at death of the spouses. This is because Gift and Estate tax laws treat non-citizens (permanent & temporary residents) residing in the United States differently than citizens.

Because the taxation system regards both spouses in a married couple as one, a spouse who is a citizen can receive unlimited tax-free transfers of assets & property from his or her spouse. This is known as the unlimited martial deduction. However, the rationale for treating non-citizens spouses differently is the government’s concern that a non-citizen spouse will receive this wealth without having been taxed and then subsequently move out of the U.S. and/or transfer it where it may never be taxed by the U.S. government. Therefore, this marital deduction is not an option for non-citizen spouses.

Here are some commonly used techniques to consider when trying to replicate the benefits afforded to citizen spouses to non-citizen spouses:

– Equalize the Estates for both spouses during their lifetimes. Although the amount changes every year to adjust for inflation, in 2009 a spouse may transfer by gift up to $133,000 of property to her non-citizen spouse without incurrence of a gift tax. This amount should be used to “even up” each spouse’s estate if the value of assets titled in each of the spouses names spouses is not even.

– Maximize the Estate Tax exemption. In 2009, upon his death, a spouse may transfer to his non-citizen spouse an amount up to the amount of the federal estate tax exemption amount without triggering the federal estate tax. Note that while this exemption amount is $3.5 million for 2009, the legislature is reportedly currently acting to either make this amount permanent or to reduce it.

– Use of a QDOT Trust. In addition to giving a non-citizen spouse the option to disclaim or “pass” on what he may be getting by including a disclaimer trust, a Qualified Domestic Trust or QDOT may also be used to postpone the estate tax when more than the amount of the personal federal estate tax exemption is left to a non-U.S. citizen spouse by the other spouse. This option allows flexibility for citizenship changes of the surviving spouse, law changes after death, and a re-evaluation of financial circumstances.

In conclusion, although Estate & Gift tax laws are intended to treat citizen spouses differently that non-citizen spouses, the implementation of available techniques with careful planning can produce favorable results under the current law while retaining flexibility for changing circumstances.

What Happens If I Die Without a Will?

Last Will & Testament (commonly referred to as simply a Will) is a document that disposes of your property at the time of your death.

A common misconception is that Wills and proper Estate Planning are only necessary for the wealthy. This is not true. Whether your estate is large or small, it is beneficial to have a properly drawn Will. Not having the Will properly drafted and executed can cause delays, great expense and possibly force the Will to be interpreted through the courts.
If an individual dies without a Will there are certain consequences that may occur. Consider the following:

  • If you have not named a guardian for you minor children (as you would in a Will) , if both parents die, the courts or a social worker may have the temporary & final decision as to who should act as guardian for your minor children, not you or your family.
  • Without a Will naming an Executor, the court will appoint an Administrator for your estate who may not know your intentions.
  • After the administrator of your estate has distributed your assets in accordance with state law, your spouse may not have enough funds to live comfortably.
  • Without a Will you cannot leave personal items such as a family heirloom, specific jewelry, artwork, etc. to a particular individual such as a nephew, cousin, or family friend.

When creating a Will, it is also important to execute a Living Willand Power of Attorney. These 2 documents are also essential to any basic Estate Plan.

A Living Will (also known as a Health Care Proxy or Advanced Health Care Directive) allows an individual to appoint someone to make all health care decisions on their behalf in the event they are unable to understand and appreciate the nature and consequences of the health care decisions. You may also provide specific instructions as to your intentions.

Power of Attorney allows an individual to designate an agent to conduct all business and financial decisions such as purchasing, improving, maintaining any real or personal property, banking, or any lawful business transactions. It can be Springing (takes effect only upon disability or incapacity) or Durable (effective immediately & remains effective upon disability or incapacity). Not having one of these in place can result in required costly court proceedings.

A minor mistake in drafting and executing your estate plan may invalidate your good intentions & your lifetime of hard work & savings. A little advanced planning can ensure your family’s goals are accomplished.